Ontario budget 2017

Twin_Moose

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18 ways Ontario’s budget will affect you

Ontario’s budget-balancing act is based on some risky assumptions

The Ontario government tabled its first balanced budget in 10*years, announcing a slew of spending measures to appeal to voters as an election looms in 2018. With approval ratings for Premier Kathleen Wynne tanking, the 2017 budget provides plenty of initiatives the government can tout in the coming months, not the least of which is the notion of fiscal responsibility.

But the Liberals’ balanced budget is far more precarious than the government is letting on. Rosy economic projections could easily be derailed any number of risks, from protectionist sentiments in the U.S. to interest rates to a slowdown in the province’s booming housing market.
The budget itself contained few surprises. Many initiatives have been previously announced, such as the province’s Fair Hydro Plan, an effort to reduce electricity bills for consumers and businesses. Likewise, the Fair Housing Plan, a suite of measures designed help renters and first-time homebuyers in an overheated real estate market, was unveiled last week.
MORE:*Ontario 2017 budget speech: Watch the video live
The major spending measures the Liberals have held back until now concern health care. The budget contains an additional $7-billion “booster shot” to the sector, which the province says will improve access to care and expand mental health and addiction services.
The amount includes $1.3-billion to reduce wait times, while hospital operating funding will increase by 3% to $518 million. Also new is a plan to provide free prescription drug coverage to everyone under the age of 24, regardless of family income. The budget allots $6.4 billion for education and training, and a $30 billion increase to the province’s multi-year infrastructure plan.
For Finance Minister Charles Sousa, though, the biggest accomplishment is eliminating the deficit. “We did it,” Sousa declared in his speech. “The 2017 Ontario Budget is a balanced budget.” Sousa intoned that the path to balance was not an easy one, demanding the government make critical choices along the way. Progressive Conservative leader Patrick Brown, meanwhile, accused the Liberals of using accounting tricks, such as one-time asset sales, to hide a $5-billion operational deficit. “It’s a scam,” Brown said. “The numbers do not add up.”
The focus on the deficits and surpluses is, in some ways, a distraction. More important is what’s happening below the top line, and the risks to the assumptions behind the Liberals’ projections.
The government is benefitting for now by a growing provincial economy. Last year, Ontario’s GDP increased by 2.7%, outpacing the rest of Canada. A red-hot real estate market has played no small part in the province’s economic fortunes, however. Residential investment, which includes a wide swath of real estate activity, accounted for nearly one-quarter of Ontario’s 2.7% growth in GDP last year.
When it comes to the housing market, the province’s finances benefit most directly through the land transfer tax, which is payable by property buyers. As a result of soaring home prices, the budget estimates revenue from the levy will be $637 million higher than forecast last year, for a total of $2.7 billion.
But the double-digit price increases in the Greater Toronto Area are not expected to last, especially when the government’s intent with its recently announced housing measures is to tame the market. The government estimates that every percentage point change in either home prices or resales amounts to a $26-million change in revenue from the transfer tax. Even accounting for a slower real estate market, the government assumes the tax will bring in a record $3.1 billion over the coming fiscal year.
“Some of the projections seem optimistic,” says Michael Dolega, a senior economist with TD Bank Group. The government assumes, for example, that business investment will rise 3.1% annually between 2017 and 2020 owing in part to solid U.S. demand and a low Canadian dollar. But business investment has been anemic for the past few years, a big concern for the Bank of Canada. Machinery and equipment investment in Ontario, the largest component of business investment, has averaged -1% growth since 2012.
Other risks to the government’s forecast loom large, too. With interest rates at near rock bottom levels, borrowing costs are low, and the government is locking in for longer terms. But rates will inevitably rise, increasing borrowing costs in the future. The province estimates that a one percentage point increase in borrowing rates would cost it $300 million.
READ:*The Wynne government flies blindly into the housing bubble
Growing protectionist sentiments in the U.S., Canada’s biggest trading partner, along with potential changes to the North American Free Trade Agreement, threaten to hamper exports too. Changes to U.S. tax policy add a further element of uncertainty. If U.S. President Donald Trump follows through on a promise to slash the corporate tax rate to 15%, that could cause companies to reconsider investing in Ontario, despite the province’s moves to lower tax rates since 2009.
Provincial debt is still rising, and is projected to tick up to $311 billion this fiscal year. Budget documents characterize that increase as “good debt”, as it’s tied to capital investments in infrastructure. Whether it lives up to the label “good debt” depends a lot on the government’s ability to invest wisely. The reality is the province’s finances remain concerning. Net debt-to-GDP stands at 37.8%, down slightly from a record high of 39.1% in 2014-15. The government set a goal to reduce it further to 35% by 2023-24. The Liberals don’t anticipate returning to pre-recession levels until 2029-30—two decades after the financial crisis.
Projections that far into the future should be taken with a grain of salt. It’s likely that at least another recession could hit between now and then. “It’s going to leave the province vulnerable should there be an economic shock,” Dolega says. When the last recession hit, Ontario’s debt-to-GDP was in the mid-20s, on a percentage basis, which gave the province room to absorb the economic shock. The elevated levels of debt today and into the future leave Ontario far more vulnerable to the next downturn.
A short-term focus on balancing the budget will no doubt be helpful for the Liberals on the campaign trail next year. But addressing the underlying debt situation would also be helpful in the long run.

I don't get it how do you spend more and balance the budget. Are they balancing it the same as Quebec on the backs of other provinces using transfer payments as their given revenue?
 
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captain morgan

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Don't really think that there's enough of an equalization payment that will offset the losses and deficits... Guessing that this has more to do with creative accounting more than anything else
 

Twin_Moose

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Don't really think that there's enough of an equalization payment that will offset the losses and deficits... Guessing that this has more to do with creative accounting more than anything else

There has to be something I don't think you can do it on $2.00/carton smokes and 15% foreign buyer fee and one time sale of $5 billion shares on first energy or whatever it is called in Ontario
 

mentalfloss

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Slowly going through this myself but I do like the free prescription meds for 25 and under.
 

Twin_Moose

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Brad's deficits getting you down.

Sorry for the late reply, on the contrary I prefer Brad's approach, I really don't believe you can spend your way out of a deficit and hope the economy can catch up to the spending. It will be really interesting in a few years to see which philosophy pays off, then I'm either in the told you so drivers seat, or being buried by a told you so avalanche.
 

Vbeacher

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Sep 9, 2013
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I don't get it how do you spend more and balance the budget. Are they balancing it the same as Quebec on the backs of other provinces using transfer payments as their given revenue?

No, through what the private sector calls fraudulent accounting practices. They're counting one-time sales of assets as revenue, counting income for the Ontario Pension Plan they can't spend, and neglecting to count spending on anything which can be termed 'infrastructure' since they've moved all capital spending onto a different set of books.

In this "balanced" budget year Ontario will borrow $26.4 billion. And I bet you thought having balanced the books means no borrowing.
Next year they will borrow $32.2 billion. But don't worry. They'll have 'balanced books' then too! Isn't life grand when you can cook the books however much you want?
 

Twin_Moose

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Apr 17, 2017
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No, through what the private sector calls fraudulent accounting practices. They're counting one-time sales of assets as revenue, counting income for the Ontario Pension Plan they can't spend, and neglecting to count spending on anything which can be termed 'infrastructure' since they've moved all capital spending onto a different set of books.

In this "balanced" budget year Ontario will borrow $26.4 billion. And I bet you thought having balanced the books means no borrowing.
Next year they will borrow $32.2 billion. But don't worry. They'll have 'balanced books' then too! Isn't life grand when you can cook the books however much you want?

How can they call it balanced, just balanced books, not balanced spending. Word play for sheeple?